There is the potential for investors to make a lot of money on the sharemarket when they buy high-quality companies at reasonable prices, and then let them compound in value over the long-term.
But according to legendary investor Peter Lynch, even the best investors in the world will only get it right six times out of ten. Sometimes, even the most attractive companies fail to perform, which is exactly what has happened with Coca-Cola Amatil Ltd (ASX: CCL).
In fact, had you bought $10,000 worth of shares five years ago today, your stake would now be worth just $6,998 (assuming you hadn't sold any along the way). Of course, you would have received some dividends during that time — $1,945 worth, by my calculations – but the total value of your shares would still be worth just $8,943. That's a negative 10.6% return over five years.
By comparison, data from the S&P Dow Jones Indices shows that the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has returned approximately 35% over the same time, including dividends. Your $10,000 investment would now be worth roughly $13,496 – a significant improvement over Coca-Cola Amatil's performance.
(Again, these are my own calculations).
As the chart shows, Coca-Cola Amatil performed particularly strongly during the first two years, outpacing the benchmark index. But it's been all downhill since then as a result of declining volumes and sales locally as well as troubles in the Indonesian market, combined with numerous profit downgrades.
Although there is no guarantee that Coca-Cola Amatil will recover from its current level (around $8.65 a share), now does seem like a good time to buy the beverage manufacturer. Under the guidance of Ms Alison Watkins, the company is aiming for a return to earnings per share growth while it is also striving for enormous efficiency improvements.
Again, it is by no means a risk-free bet but for long-term investors, it is looking attractive at its current price. As an addition, the stock offers a 4.9% dividend yield, franked to 75%, which is particularly compelling in this low-interest rate environment.
